Northeast Bancorp Reports Second Quarter Results, Declares Dividend
Lewiston, ME (January 29, 2015) ‒ Northeast Bancorp (“Northeast” or the “Company”) (NASDAQ: NBN), a Maine-based full-service financial services company and parent of Northeast Bank (the “Bank”), today reported net income of $1.6 million, or $0.16 per diluted common share, for the quarter ended December 31, 2014, compared to net income of $1.4 million, or $0.13 per diluted common share, for the quarter ended December 31, 2013. Net income for the six months ended December 31, 2014 was $3.2 million, compared to $1.7 million for the six months ended December 31, 2013.
The Board of Directors has declared a cash dividend of $0.01 per share, payable on February 26, 2015 to shareholders of record as of February 12, 2015.
“We closed another productive quarter,” said Richard Wayne, President and Chief Executive Officer. “Total loans grew by 6%, on the strength of 10% growth in our LASG loan book. Transactional income of $2.8 million produced a 13.7% return on purchased loans, contributing significantly to a 4.9% net interest margin for the period. We made significant progress in building out our new SBA lending initiative, hiring 7 new business development officers in November. And, in our continuing effort to improve returns for shareholders, we repurchased 434 thousand shares at an average price of $9.14.”
At December 31, 2014, total assets were $810.0 million, an increase of $48.1 million, or 6.3%, compared to June 30, 2014. The principal components of the change in the balance sheet follow:
1. The loan portfolio – excluding loans held for sale – grew by $58.9 million, or 11.4%, compared to June 30, 2014, the result of net growth of $65.9 million in commercial loans purchased or originated by the Bank’s Loan Acquisition and Servicing Group (“LASG”), offset by a $7.0 million decrease in the Bank’s Community Banking Division loan portfolio.
New loans generated by the LASG totaled $68.2 million and $121.7 million for the three and six-month periods, respectively, ending December 31, 2014. The quarterly growth in LASG loans consisted of $39.7 million in purchases, at an average price of 85.7%, and $28.5 million in originations. Residential and consumer loan production sold in the secondary market totaled $26.0 million for the quarter.
As discussed in the Company’s prior SEC filings, the Company made certain commitments to the Board of Governors of the Federal Reserve System in connection with the merger of FHB Formation LLC with and into the Company in December 2010. The Company’s loan purchase and commercial real estate loan availability under these conditions follow.
An overview of the Bank’s LASG portfolio follows:
2. Deposits increased by $37.9 million, or 6.4%, for the quarter, attributable primarily to growth in non-maturity accounts, which increased by $39.2 million, or 15.5%, for the three months ended December 31, 2014, offset in part by a decrease of $1.3 million in time deposits. For the six-month period, deposits increased by $57.4 million, or 10.0%. Growth in both periods was attributable mainly to increases in money market accounts attracted through the Bank’s online-only ableBanking division.
3. Stockholders’ equity decreased by $1.1 million from June 30, 2014, due principally to $4.1 million in share repurchases (representing 448,686 shares), a decrease in accumulated other comprehensive income of $358 thousand and $204 thousand in dividends paid on common stock, offset in part by earnings of $3.2 million and $297 thousand of scheduled amortization of stock-based compensation.
Net income from continuing operations increased by $169 thousand to $1.6 million for the quarter ended December 31, 2014, compared to $1.4 million for the quarter ended December 31, 2013.
1. Net interest and dividend income before provision for loan losses increased by $409 thousand, or 4.5%, for the quarter ended December 31, 2014 compared to the quarter ended December 31, 2013, due primarily to higher transactional interest income from purchased loan payoffs and the positive effect of balance sheet growth. Average total interest-earning assets for the three months ended December 31, 2014 increased by $76.0 million, and average loans increased by $59.3 million, when compared to the three months ended December 31, 2013. For the six months ended December 31, 2014, average total interest-earning assets increased by $68.0 million and average loans increased by $61.3 million compared to the six months ended December 31, 2013.
The various components of transactional income are set forth in the table below entitled “Total Return on Purchased Loans.” When compared to the three and six month periods ended December 31, 2013, transactional interest income increased by $515 thousand and $1.8 million, respectively. The following table summarizes interest income and related yields recognized on the loan portfolios.
The yield on purchased loans in each period shown increased primarily due to unscheduled loan payoffs, which resulted in immediate recognition of the prepaid loans’ discount in interest income. The following table details the “total return” on purchased loans, which includes transactional income of $2.8 million for the quarter ended December 31, 2014, an increase of $738 thousand from the quarter ended December 31, 2013. Additionally, total transactional income for the six months ended December 31, 2014 increased by $1.8 million, compared to the six months ended December 31, 2013. The following table summarizes the total return recognized on the purchased loan portfolio.
2. Noninterest income increased by $535 thousand for the quarter ended December 31, 2014, compared to the quarter ended December 31, 2013, principally due to the following:
• An increase of $432 thousand in gain on sales of portfolio loans, realized primarily on the sale of the guaranteed portion of SBA loans. The Company recognized $445 thousand in gains on SBA loans sold for the three months ended December 31, 2014, compared to no SBA gain for the quarter ended December 31, 2013; and
• An increase of $106 thousand in gains realized on sale of residential loans originated for sale in the secondary market, due principally to an increase in purchase-related mortgage loan activity in the current period.
3. Noninterest expense increased by $596 thousand for the quarter ended December 31, 2014, compared to the quarter ended December 31, 2013, principally due to the following:
• An increase of $484 thousand in salaries and employee benefits, principally due to increased employee head count and incentive compensation, offset by a decrease in group insurance expense and employee stock options expense;
• An increase of $177 thousand in professional fees, due primarily to fees for temporary consulting services;
• An increase of $123 thousand in loan acquisition and collection expenses, due in part to an increased level of loan purchases in the quarter ended December 31, 2014 when compared to the quarter ended December 31, 2013; and
• A decrease of $130 thousand in occupancy and equipment expense, the result of a reduction in software maintenance and depreciation expense following the conversion of the Bank’s core systems platform to an outsourced model in May 2014. The decrease in equipment expense was offset in part by higher data processing fees, which increased by $70 thousand.
4. The Company’s effective tax rate for the quarter ended December 31, 2014 was 36.1%, compared to 32.4% for the quarter ended December 31, 2013. The increase in the quarter was primarily the result of a change in estimated state tax apportionment.
At December 31, 2014, nonperforming assets totaled $14.3 million, or 1.8% of total assets, as compared to $9.3 million, or 1.2% of total assets at June 30, 2014. The increase in nonperforming assets during the six months ended December 31, 2014 was mainly due to the addition of one recently-purchased loan relationship.
At December 31, 2014, the Company’s Tier 1 leverage capital ratio was 14.8%, a decrease from 15.9% at June 30, 2014, and the total risk-based capital ratio was 21.4%, a decrease from 23.7% at June 30, 2014. The decreases resulted primarily from balance sheet growth and the effect of purchases under the Company’s share repurchase program in the six months ended December 31, 2014.
Investor Call Information
Richard Wayne, Chief Executive Officer of Northeast Bancorp, Claire Bean, Chief Operating Officer of Northeast Bancorp, and Brian Shaughnessy, Chief Financial Officer of Northeast Bancorp, will host a conference call to discuss second quarter earnings and business outlook at 9:00 a.m. Eastern Time on Friday, January 30, 2015. Investors can access the call by dialing 877.878.2762 and entering the following passcode: 70956761. The call will be available via live webcast, which can be viewed by accessing the Company’s website at www.northeastbank.com and clicking on the About Us - Investor Relations section. To listen to the webcast, attendees are encouraged to visit the website at least fifteen minutes early to register, download and install any necessary audio software. Please note there will also be a slide presentation that will accompany the webcast. For those who cannot listen to the live broadcast, a replay will be available online for one year at www.northeastbank.com.
About Northeast Bancorp
Northeast Bancorp (NASDAQ: NBN) is the holding company for Northeast Bank, a full-service bank headquartered in Lewiston, Maine. Northeast Bank offers traditional banking services through its Community Banking Division, which operates ten full-service branches and two loan production offices that serve individuals and businesses located in western and south-central Maine and southern New Hampshire. Northeast Bank’s Loan Acquisition and Servicing Group purchases and originates commercial loans for the Bank’s portfolio. In addition, the Small Business Lending division supports the needs of growing businesses nationally. ableBanking, a division of Northeast Bank, offers savings products to consumers online. Information regarding Northeast Bank can be found on its website at www.northeastbank.com.
Non-GAAP Financial Measure
In addition to results presented in accordance with generally accepted accounting principles (“GAAP”), this press release contains certain non-GAAP financial measures, including tangible common stockholders’ equity, tangible book value per share, and net operating earnings. Northeast’s management believes that the supplemental non-GAAP information is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.
Statements in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although Northeast believes that these forward-looking statements are based on reasonable estimates and assumptions, they are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and other factors. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond the Company’s control. The Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, changes in interest rates and real estate values; competitive pressures from other financial institutions; the effects of weakness in general economic conditions on a national basis or in the local markets in which the Company operates, including changes which adversely affect borrowers’ ability to service and repay our loans; changes in loan defaults and charge-off rates; changes in the value of securities and other assets, adequacy of loan loss reserves, or deposit levels necessitating increased borrowing to fund loans and investments; increasing government regulation; the risk that the Company may not be successful in the implementation of its business strategy; the risk that intangibles recorded in the Company’s financial statements will become impaired; changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K and updated by the Company’s Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. These statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this communication or to reflect the occurrence of unanticipated events.